Question

1. On January 1, 2018, Peter Corporation acquired 75% of the outstanding common stock of Sandy Company for $450,000. There was no control premium.

             The following information about Sandy Company on January 1, 2018 was available:

	Book value	Fair value
Cash	193,000	193,000
Inventory	40,000	39,400
Building	180,000	200,000
Total	413,000	432,400
Accounts Payable	3,000	3,000
Common Stock	200,000
Add. Paid-in Capital	110,000
Retained Earnings	100,000
Total	413,000

Peter uses the complete equity method to account for its investment in Sandy. During 2018, Sandy had a net income of $80,000. The remaining useful life of the building was ten years with no salvage value. Sandy uses straight line depreciation. Sandy’s cost of goods sold (FIFO) was $70,000 in 2018. On December 23, 2018, Sandy declared and paid $50,000 cash dividend to its shareholders. Goodwill was unimpaired as of December 31, 2018.

     

(1) Prepare journal entries for Peter to record under the complete equity method of accounting the operating results of Sandy in 2018.

(2) Prepare the working paper eliminating entries C, E, R, O and N (in journal entry format) for Peter Corporation and subsidiary for the year ended December 31, 2018.

Answer 1

Unit selling price	$          400.00
Less: Unit Variable cost	$        (240.00)
Unit Contribution Margin	$    160.00
Carla Vista Company'
CVP income statement
For the Month ended Sept 30,2020
	Total	Per Unit
Sales	$ 2,40,000.00	$ 400.00
Variable Costs	$ 1,44,000.00	$ 240.00
Contribution margin	$     96,000.00	$ 160.00
Fixed Costs	$     54,400.00
Net income	$     41,600.00
break even point in units : Fixed cost / Contribution margin per unit
54400 / 160	340	Units
Carla Vista Company'
CVP income statement
For the Month ended Sept 30,2020
	Total	Per Unit
Sales	$ 1,36,000.00	$ 400.00
Variable Costs	$     81,600.00	$ 240.00
Contribution margin	$     54,400.00	$ 160.00
Fixed Costs	$     54,400.00
Net income	$                   -